Credit’s getting tougher to come by these days, and this credit crunch impacts virtually every American. So what is a consumer to do? It depends on how you use your card. With that in mind, we’ve created this guide to help you make your way.
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Credit’s getting tougher to come by these days, and this credit crunch impacts virtually every American. Consumers are seeing their credit limits slashed. Mailboxes are no longer overflowing with 0 percent APR credit card offers. And some people can’t even get a credit card, period, because issuers are much more leery to to take a risk on a new customer unless their credit sparkles like a diamond.
So what is a consumer to do? It depends on how you use your card.
With that in mind, we’ve created this guide to help you navigate through this economic turbulence .Just select your credit card consumer type to read our suggestions and then scroll farther down the page to see more advice that’s smart to follow, no matter who you are.
Mr. & Ms. Paid in full | Balance carriers | Rewards junkies
Debit card users | Bad credit risks | Good credit risks
Advice for everyone
Mr. & Ms. Paid in full
Who they are: People who pay off their balances in full each month
What they should do: Keep up the good work. You have little to worry about regarding interest rate increases. However, danger still lurks. Watch your mail for notices on term changes, such as lowered credit limits. Those are the types of things that can eat away at your credit score.
Who they are: People who regularly carry balances on their credit card accounts
What they should do: Quit shopping, and pay off as much debt as you can. This may sound obvious, but it’s particularly pertinent in the current economic crisis. Issuers are looking for any excuse to crack down on consumers, so it’s your job not to give them one. Paying down your debt as much as possible and making your payments on time, every time will make it less likely for your issuer to jack up your interest rates or slash your credit limits. And be sure to check out our calculators to see how long it will take to pay off your current balance.
Who they are: People who collect points — sometimes obsessively — on their rewards cards
What they should do: Keep a watchful eye. Rewards cardholders are beset on all sides by extra fees and more combining to make their beloved miles and points less valuable every day. Some issuers are even forfeiting consumers’ miles and points if the person decides to opt out of an interest rate hike and close an account. This won’t be getting better anytime soon, as issuers scramble to increase profits in a troubled economy. Remember: All credit card terms are subject to change, so be sure to monitor any mail from your credit card issuer. You can also use our calculators to determine whether cash back cards or airline miles cards are better than low interest cards.
Debit card users
Who they are: People who use debit cards
What they should do:Steer clear of fees. As times get tougher and debit cards become more and more popular with consumers who are wary of credit cards, issuers are looking for ways to increase their profits in this area. Watch your mail for notifications regarding changes in terms and fee increases. Also, make sure to not to spend more than what’s in your account and trigger overdraft fees. One thing you shouldn’t have to worry about is losing your money in a bank failure. Deposits in checking and savings accounts tied to debit cards are insured for up to $250,000 by the FDIC.
Bad credit risks
Who they are: People with poor payment histories
What they should do: Avoid missing or paying late. If lenders notify you of interest rate hikes, opt out of the higher rates. (You’ll likely have to do that via snail mail, but you should read your terms and conditions for all the details.) When you do so, your account will likely be closed and you may even forfeit any miles or rewards points that you’ve earned — but the good news is that you can pay off the balance at the lower rate. Again, issuers are looking for any excuse to crack down on consumers, so don’t give them any more reasons than you already have. Paying down your debt as much as possible and making your payments on time, every time will make it less likely for your issuer to jack up your interest rates or slash your credit limits. Be sure to check out our debt calculators to see how long it will take to pay off your cards by just making the minimum payments.
Good credit risks
Who they are: People with good payment histories
What they should do: Stay on the straight and narrow. Pay your bills on time and, if possible, avoid incurring any new debt. Try to pay more than the minimum each month to pay off your debts sooner and reduce your credit utilization rate. You can use our debt calculators to see how long it will take to pay off your current balance and to see if a balance transfer might be a good idea. Also remember, though, that good credit doesn’t make you immune to changing terms and conditions. Watch your mail because even those with good credit can find their credit limits slashed as issuers try to reduce risk. It’s important to beware of such a change because lower credit limits mean higher credit utilization rates which mean a lower credit score. In short, watch your back.
- Diligently track changes on your account. Make sure to review any mail that you receive from your card issuer and set up e-mail alerts, which will automatically alert you to any changes. According to the Federal Reserve’s quarterly Senior Loan Officer Opinion Survey, nearly 60 percent of participating banks said that in the third quarter of 2008, they had restricted credit card lending by taking one or more of the following actions:
- Reducing consumers’ credit limits.
- Imposing higher minimum credit score requirements to get a card.
- Tightening terms and conditions on existing cardholders.
- Boosting minimum payments.
- Raising rates.
- Run the numbers. Our debt calculators can be great help in determining:
- Speak to your card issuer. If you notice any changes in your credit card account, try to negotiate with your card issuer and demand better terms. It is likely that the credit card company does not want to lose you as a customer and will strive to keep you.
- Monitor your credit. Manage and stay on top of your debt by getting a free peek at your annual credit report at www.annualcreditreport.com, and pay close attention to fluctuations in your credit score. Since free credit reports are only available once a year, use sources like MyFICO.com to educate yourself on the financial behaviors that impact credit scores and build a more effective finance strategy.
- Card offerings are diminishing, so compare offers. As the credit crisis worsens, credit card issuers are tightening their standards for approval. Compare and shop offers on CreditCards.com to determine the best offer for your needs.